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Desjardins isn't convinced Ottawa's proposal will do much to ease housing pressures
Published on December 4, 2023 • Last updated on December 5th, 2023 • 4 minutes reading time
There are currently 235,000 short-term rental listings in Canada on platforms like Airbnb and Vrbo. Photo by Arlen Redekop/Postmedia Files
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Short-term rentals are contributing to Canada's ongoing housing affordability crisis, a new report says.
According to the Dec. 4 report, there are currently 235,000 short-term rental (STR) listings in Canada on platforms like Airbnb and Vrbo, representing 1.4 percent of Canada's total housing stock or 4.9 percent of the country's long-term rental stock, Desjardins found.
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“Studies overwhelmingly show that neighborhoods with high penetration of STR listings experience faster rising rents, lower long-term rental vacancy rates and higher home sales prices,” he said Desjardins senior director of Canadian economics Randall Bartlett and colleague Kari Norman.
Canada, like many other countries, is experiencing a housing affordability and rental crisis.
The Canada Mortgage and Housing Corp. estimates that Canada will need to add about 3.5 million units to the current construction pace by 2030 to bring housing prices back into range.
Renting isn't much better.
Rents nationwide are on the upswing, reaching $2,178 in October after bottoming out at just under $1,700 in the spring of 2021, according to the latest report from rental platform Rentals.ca.
High interest rates are blamed for forcing people who can't afford mortgage payments to rent instead of buy, straining the supply of rental units on the market.
Desjardins estimates that the statewide vacancy rate was 1.9 percent in 2022 — well below the long-term average of 2.7 percent. The balanced market interest rate is three percent. Vacancy rates are tight across the country, not just in large urban centers like Toronto and Vancouver, the economists said.
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STRs also play a role in tight rental markets.
“Moving away from long-term leases (LTR) will remove units from the rental housing stock. This puts upward pressure on the rents paid by residents as supply is restricted. Additionally, investors looking to purchase homes for use as full-time STRs face direct competition from potential owner-occupiers. These effects are commonly referred to as the “Airbnb effect,” wrote Norman and Bartlett.
The Airbnb effect caught the attention of the federal government in its Nov. 21 budget update.
Finance Minister Chrystia Freeland announced that expenses related to STR income will no longer be deductible from income tax in areas where STRs are banned or properties violate rules on license, permit or registration requirements.
However, Desjardins economists are not convinced this will do much to ease housing pressures.
“While every little bit counts, we are skeptical that these amounts will be enough to level the playing field between STRs and LTRs,” Norman and Bartlett said.
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They're not the only ones.
The short-term rental proposal is once again poorly thought out and will set a dangerous precedent
Kim Moody
In a column for the Financial Post, accountant Kim Moody warned that the new rules would force owners not to report their income.
“The short-term rental proposal is once again poorly thought out and will set a dangerous precedent for business owners to be taxed on their gross income rather than their net profits. Does anyone really think this will encourage property owners to rent out their properties long-term, especially when most provinces have landlord/tenant laws that are very sympathetic to tenants who are behind on their rent? It is not easy and very time-consuming for a landlord to evict such tenants,” Moody wrote in his column.
Despite these concerns, more cities and provinces are implementing short-term rental regulations.
Toronto requires people renting for less than 28 days to obtain a license from the city. Other cities, including Ottawa, require permits to ensure public housing units are not used as STRs. And in some jurisdictions, homeowners associations are allowed to ban STRs in their buildings. Vancouver has a policy that only allows short-term rentals in primary residences.
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The provinces are also getting involved. British Columbia passed the Short-Term Rental Accommodations Act in October 2023 to attempt to bring an estimated 16,000 commercial STRs back into the long-term market. The law includes platform accountability: if a listing does not contain a valid business license, the STR platform must remove the listing at the request of the local government.
Platforms are also required to share listing information with the province, which may then pass it on to local governments.
Quebec enacted the Tourist Accommodation Act in 2021. Owners of units intended to be rented for 31 days or less must obtain a declaration of compliance from their local municipality and then apply for a registration number. Platforms must provide proof of approval and remove entries from the system without approval.
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But Desjardins said governments need to do more, including setting specific and measurable targets, providing sufficient financial and human resources to implement and enforce regulations, and requiring accountability and disclosure of data from STR platforms.
“As hosting platforms continue to evolve, STR policies targeting non-primary residential units must be continually monitored, evaluated and adjusted. This could help ensure the future stability of long-term rental and housing markets in cities large and small across the country,” they said.
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